Abstract
The paper extends Woodford's [Optimizing models with nominal rigidities, Chapter 3 of Interest and prices: foundations of a theory of monetary policy, Princeton University, 2000; unpublished manuscript] analysis of the closed economy Phillips curve to an open economy with both commodity trade and capital mobility. We show that consumption smoothing, which comes with the opening of the capital market, raises the degree of strategic complementarity among monopolistically competitive suppliers, thus rendering prices more sticky and magnifying output responses to nominal GDP shocks.
| Original language | English |
|---|---|
| Pages (from-to) | 1-9 |
| Number of pages | 9 |
| Journal | Economics Letters |
| Volume | 75 |
| Issue number | 1 |
| DOIs | |
| State | Published - Mar 2002 |
Keywords
- Capital mobility
- New Keynesian
- Phillips curve
- Trade
